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The smart guide to leveraged crypto trading

Trading with leverage, often referred to as leveraged crypto trading, unlocks a world of opportunity but also risks for crypto traders. It allows you to take larger positions with less own capital – multiplying both potential profits and potential losses. By using tools like margin trading or leveraged tokens, traders can open positions far beyond what their own funds would normally allow. But while the potential for amplified gains is real, so is the risk.

That’s why understanding the leverage universe matters. Each product works differently, fits different strategies and comes with its own level of complexity. Whether you’re just starting out or levelling up your trading approach, knowing how to use leverage responsibly is crucial.

In this guide, we’ll explore the full landscape of leveraged trading in crypto. You’ll learn how these products work, how Bitpanda Leverage and Bitpanda Margin Trading* fit into the picture, and how to avoid the most common mistakes. We’ll also explain how to manage risk using tools like margin trading limit orders in the form of stop loss and take profit orders, helping you stay in better control of your trades.

What is leverage in trading, and why use it in crypto?

Let’s start with the basics. Leverage means using borrowed funds to open a larger position than you could with your own funds alone. It’s expressed as a ratio – like 2x, 5x or 10x – and tells you how much bigger your trade becomes thanks to borrowing.

For example, with 5x leverage, a €200 investment lets you open a €1,000 position. If the price goes up by 10%, you make a €100 profit. But if the price drops by 10%, you lose €100, which is half your original investment.

This example does yet not include fees which reduce your gains and amplify losses.

So why do people trade crypto with leverage? Because it offers flexibility:

You can trade more with less capital
You can profit from small price moves
You can go long

But this flexibility comes with risks. Leverage doesn’t just increase your exposure – it also increases your responsibility and potential losses. That’s why it’s crucial to understand the different types of leveraged trading before using them.

What types of leveraged crypto trading are there?

In the crypto space, you’ve got several ways to use leverage. Each comes with different mechanics, risk levels and user responsibilities.

Here are the four main types of leveraged products you’ll find:

Margin trading: You borrow funds to increase your trade size. Borrowing funds will be subject to daily fees that are charged every four hours. You must control your trade and must manage your margin level to avoid liquidation.
Leveraged tokens: These tokens give you exposure to a leveraged position without needing to manage margin or worry about liquidation. Unlike other leveraged products, they come with less exposure, making them a simpler and more accessible option for managing risk.
Perpetual contracts: Derivatives that let you trade with leverage without expiry. You pay (or receive) funding fees to hold positions.
Futures: Contracts that agree on a future price, settled at a later date. Like perpetuals, they can be highly leveraged and are common among advanced traders.

Each of these products/tools works differently, and each fits different strategies. Let’s dive deeper into the first, and most hands-on, form: margin trading.

1. Margin trading

Margin trading is one of the most direct and flexible ways to trade with leverage. It allows you to borrow capital from a platform or liquidity provider to increase your trade size. You remain in control of the position – from choosing when to enter and exit, to managing risk through market orders. At the same time margin trading puts you at risk losing your entire investment.

Here’s how it works:

Let’s say you want to open a long position worth € 1,000 in Bitcoin (BTC), but you only have € 200. With 5x leverage, you contribute € 200 of your own funds and borrow the remaining € 800 from the broker or exchange you trade on. This requires you to provide collateral to secure the borrowed amount.

Keep in mind that fees apply: at a daily rate of 0.15% on the full position, you’d pay € 1.50 per day. After five days, that’s € 7.50 – almost 4% of your margin, even if the market doesn’t move. If BTC drops 10%, you’d lose € 100, plus the fees. And if your position gets liquidated, an additional fee is deducted from what’s left of your funds.

This is the leverage effect in action: both gains and losses are magnified. The higher the leverage, the smaller the price move needed to impact your capital.

Margin trading is popular because it gives traders more flexibility and control. You can use it to:

Amplify small market movements to generate higher returns
Go short and profit when prices fall, not just rise
Hedge a long-term position with a short-term trade
Free up capital for other investments

But margin trading requires active management. You need to monitor your margin level constantly. If the value of your position drops too far, your position may be liquidated. That means the platform will automatically close your trade by liquidating your assets to limit further losses, and you could lose your entire investment.

For more details on how different types of margin trading work, check out our dedicated article on margin trading.

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Margin levels, thresholds and liquidation prices

When trading with leverage, it's not just the asset price you need to monitor – your margin level is just as important. It reflects the ratio between your own funds (equity) and the borrowed amount used to open a position. This level helps determine how close your leverage position is to being at risk of being liquidated.

As the value of your crypto assets forming part of the leverage position drops due to either market losses or accumulating fees, your margin level falls. If it drops below a specific threshold, called the maintenance margin, your leverage position becomes vulnerable. The platform may trigger a margin call, asking you to top up your funds and provide additional collateral or to repay the borrowed funds by closing your leverage position. If you don’t react in time, or the price continues to move against you and further fees accumulate, this can result in the margin level falling below the minimum margin level (this is also referred to as Liquidation Treshold) and your position can be liquidated to prevent deeper losses.

Example: You’ve opened a €2,000 position using €400 in own funds After four days of fees (€ 12 total) and a price drop that reduces your own funds to €190, your margin level slips below the platform’s liquidation threshold. The platform closes your position automatically to protect your remaining funds and applies a liquidation fee. The final amount returned to your wallet depends on how much equity remains after all deductions.

What influences the liquidation price?

The liquidation price, the price point at which your position is automatically closed, isn’t fixed. It shifts based on:

Leverage: Higher leverage increases the risk and narrows your safety buffer.
Market volatility: Sharp price swings can erode your equity faster than expected.
Accumulated fees: Daily fees eat into your equity over time, even in sideways markets.
Platform-specific rules: Each platform defines its own liquidation margin thresholds and may use buffers for added protection.

Stay in control with Bitpanda’s risk indicator

Bitpanda provides a colour-coded risk indicator to help you track the health of your leveraged positions. It gives a clear view of your margin level, showing how close your position is to being liquidated based on your current equity and market conditions.

The indicator is split into three zones:

Green shows your position is stable and healthy.
Yellow signals medium risk and shows that you need to monitor more closely.
Red means your position is at risk. If it drops further, Bitpanda may automatically close it to prevent bigger losses.

Leveraged tokens

Leveraged tokens are a simpler way to gain leveraged exposure to a crypto asset. They’re designed to track a multiple of the daily return of an underlying asset – for example, 2x long BTC rises 2% when BTC goes up 1%, and drops 2% when BTC goes down 1%.

The key difference? With leveraged tokens, you don’t borrow funds or manage margin manually. Instead, the token itself handles everything in the background. It automatically rebalances to maintain its target leverage and removes the risk of liquidation.

Leveraged tokens are separate assets that fluctuate with the price of the underlying cryptocurrency, like Bitcoin, rather than the actual asset itself. With margin trading, you're trading the actual asset, just with enhanced exposure. That distinction makes leveraged tokens more accessible for everyday traders.

Let’s break it down:

You buy a leveraged token just like you’d buy any other crypto.
There’s no need to manage collateral, borrow funds or watch liquidation levels.
The leverage is built into the token, and it’s rebalanced daily to stay at the target multiple.

This makes leveraged tokens ideal for:

Short-term trading strategies in trending markets
Users who want to leverage without the complexity of managing a margin position
Avoiding liquidation risk and sudden position closures

However, there’s a trade-off. Because the token rebalances every day, returns can be affected by market volatility – especially in sideways markets. This can reduce the token’s effectiveness over time and make long-term holding less efficient.

In short, leveraged tokens offer a simplified experience with fewer moving parts – but they’re best used tactically, not as a buy-and-hold investment.

Perpetuals and futures

Perpetual contracts and futures are both types of derivatives – financial instruments that derive their value from an underlying asset, like Bitcoin or Ethereum. Instead of buying the asset itself, you trade on its price movements.

What’s the difference between the two?

Futures are agreements to buy or sell an asset at a fixed price on a specific date in the future. Once the contract expires, it is settled – either in cash or by delivering the asset.
Perpetual contracts work similarly but without an expiry date. You can hold the position as long as you want, as long as you maintain the required margin.

To keep perpetual contracts trading close to the market price of the underlying asset, there’s a mechanism called funding fees. These are periodic payments between long and short positions, depending on which side is more in demand. If you're holding a position when the funding is due, you either pay or receive a fee.

Why use them?

Both futures and perpetuals allow traders to open highly leveraged positions – sometimes 50x or more. That means a small change in price can lead to significant gains or losses. These products are popular among institutional and professional traders for:

Arbitrage: profiting from price differences across markets
Hedging: offsetting potential losses in other positions
Speculation: taking positions on price movements without owning the asset
High-frequency trading: executing many trades quickly using algorithms

But with high leverage comes high risk. Sudden price swings can lead to liquidation – where your position is forcibly closed and your margin is lost. The more leverage you use, the smaller the price movement needed to trigger a liquidation.

Because of their complexity, volatility and cost structures (like funding fees), these instruments require a strong understanding of how derivatives work. Unless you’re already comfortable with leverage, it’s wise to stick with more accessible options like margin trading or leveraged tokens.

Smart strategies and risk control

Leverage is powerful, but it needs discipline. Without a risk strategy, even experienced traders can be caught out. Here’s how to stay ahead:

Use stop loss orders to limit downside risk. These automatically close your position at a pre-defined loss level.
Set take-profit orders to lock in gains. This helps avoid getting greedy or missing your ideal exit.
Size your positions carefully. Don’t use all your capital on one trade. Diversification applies to leveraged trades, too. You can also adjust your exposure by adding to or reducing an existing margin position, depending on your strategy and market conditions. Only use capital that you can afford to lose.
Understand liquidation levels. If your margin falls below the maintenance level, your position may be liquidated. Always know where this level lies and monitor it actively.

Common mistakes and how to avoid them

New to leverage? Here’s what to watch out for:

Going all-in on one trade: It only takes one wrong move to lose everything. Keep margin positions small.
Skipping the learning curve: Just because it’s easy to click “5x” doesn’t mean you should. Learn how the tools work before you use them.
Emotional trading: Losses hurt – but doubling down emotionally often leads to bigger ones.
Neglecting market conditions: Volatile or illiquid markets can spike in either direction. Trade only when you understand what’s moving the market.
Ignoring fees: Leveraged products often come with overnight fees, funding costs, liquidation fees and spreads. These eat into profits over time and influence your margin.

How fees affect your leveraged trades

Fees are an often-overlooked factor that can have a major impact on your performance, especially when trading with leverage. These are the main ones to consider:

Buy fees: Charged when opening a leveraged trade.
Funding fees (or interest fees): Charged for holding a margin position open. Timing varies by platform – on Bitpanda, they accrue every 4 hours.
Liquidation fees: Applied if your position is automatically closed due to insufficient margin.
Closing fees: Taken when you manually exit a leveraged trade.

Example: You open a € 5,000 margin position with € 1,000 of your own funds and pay a 0.15% daily fee on the full position. After five days, that’s € 37.50 in fees – 3.75% of your margin is gone, even if the price hasn’t moved. If your position is later liquidated, an additional liquidation fee will be deducted from your remaining equity.

Always factor in the cost of holding and closing trades, especially if your strategy involves longer timeframes or high leverage. Small fees can compound into large costs and reduce your ability to recover from downturns.

On Bitpanda Margin Trading*, there is no buy fee when opening a position. You’ll pay a 0.3% closing fee when you close it, and a 1% fee if your position is liquidated. The funding fee is 0.03% every four hours, or 0.18% per day.

Trade with leverage on Bitpanda

With Bitpanda, you can trade with borrowed capital across a growing range of leveraged products – directly on the Bitpanda platform. Whether you want full control over your trades or prefer a simpler approach, you’ll find tools designed to match your strategy.

Bitpanda Margin Trading* lets you trade more than 100 cryptocurrencies with up to 10x leverage. Go long, track your positions in real time and manage risk with ease. Liquidation alerts help you stay informed, and with Margin Limit Orders – including Take Profit and Stop Loss – on the way, you’ll be able to better control and apply your strategy.

If you prefer leveraged exposure without actively managing margin, Bitpanda Leverage also offers leveraged tokens. These track the daily performance of an asset at a fixed leverage level – like 2x long or short – and are ideal for short-term market moves. There’s no need to manage collateral or worry about liquidation, making them a straightforward way to access leverage.

Start exploring your leverage options with Bitpanda today and find the product that fits your strategy.

Ready to amplify your crypto trades? Start now with Bitpanda Margin Trading.

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Additional risks when using margin trading

Margin trading involves borrowing E-Token to increase your exposure. While this can amplify potential gains, it also significantly increases the risk of losses. Even small price movements can trigger a margin call or result in the liquidation of your collateral. This could lead to a total loss of your collateral, including your initial E-Tokens.

Daily Fees apply every four hours and will reduce your margin level over time.

Margin trading is only suitable for experienced customers. You should fully understand how the product works, be aware of the risks and only use assets you can afford to lose. If you cannot bear a substantial or total loss, margin trading is not appropriate for you.

Conclusion

Margin trading can be exciting and profitable, but it’s not a simple shortcut to success. It’s a tool that rewards knowledge, preparation, patience and control. Whether you're trading with 2x or 10x leverage, understanding your position size, using risk controls and staying informed makes all the difference. Start small, build confidence over time and never trade with more than you’re prepared to lose.